Taiwan to Let Mainland Lenders Own Bigger Stakes of Banks

Taiwan will let Chinese banks own as
much as 20 percent of some financial institutions, raising a
limit on mainland ownership from 5 percent as cross-strait
economic integration deepens.

Taiwan’s Financial Supervisory Commission announced the
move yesterday after its Chairman Chen Yuh-chang met his
counterpart from the China Banking Regulatory Commission, Shang Fulin, in Taipei in the third gathering of its kind since 2011.

Larger potential investments may turn into partnership
opportunities for Taiwanese banks such as Fubon Financial
Holding Co. and Cathay Financial Holding Co., which are seeking
greater profits outside of a saturated home market. Chinese
President Xi Jinping has pledged to promote cross-strait ties,
continuing efforts of the previous administration.

Mainland China banks will be allowed to take a 10 percent
stake in listed financial institutions, 15 percent in unlisted
firms, and as much as 20 percent of banking units of financial
holding companies, the Taiwan regulator said in a statement.

The higher cap will take effect as soon as possible, Kuei Hsien-Nung, director general of the FSC’s banking bureau, said
yesterday, and will be completed under the services and trade
pact of the Economic Cooperation Framework Agreement signed
between the two governments in 2010.

Commercial Banks

China will also let its commercial banks invest in Taiwan
stocks under the qualified domestic institutional investor, or
QDII, program. An agreement between the regulators signed
yesterday will take effect within 60 days, the FSC said.

Taiwan’s financial regulator in 2011 urged lenders to
expand faster on the mainland as competition erodes returns at
home. The banks have the second-narrowest net interest margin in
the Asia-Pacific region, after Japan, data compiled by Bloomberg
show. Standard & Poor’s said in a March report that Taiwan’s
banking sector profitability is “mediocre” compared with its
peers in Asia.

“The development of Taiwan banks has reached a bottleneck
in the saturated domestic market as overbanking is a big
problem,” said Mega’s Chuang. “The opportunities to expand
business in China will be a driver for its earnings growth.”

Eleven Branches

The MSCI Taiwan Financials Index rose 0.1 percent as of
9:52 a.m. local time. It has gained 11 percent this year,
outpacing a 2.7 percent increase in the island’s benchmark Taiex
index.

Taiwan Business Bank (2834) was approved by the CBRC to set up its
first China branch in Shanghai, according to a March 26 filing
with the Taiwan stock exchange, bringing the number of Taiwan
bank branches in China to 11, according to the FSC.

Xi said in February that Communist Party leaders have a
duty to seek peaceful reunification with Taiwan and pledged to
uphold the one-China principle, the official Xinhua News Agency
reported after a meeting between Xi and Kuomintang Honorary
Chairman Lien Chan. On March 17, at the closing of this year’s
National People’s Congress, Xi pledged to improve relations
across the Taiwan Strait.

Taiwan banks began taking yuan deposits on the island in
February, as well as underwriting debt in the mainland’s
currency, after an agreement was signed last year allowing for
yuan clearing in Taiwan. China, with a population more than 50
times bigger than Taiwan’s, is the island’s largest trading
partner.

Separate Governments

China and Taiwan have been ruled separately since 1949,
when the Kuomintang government fled to the island during a civil
war against Communist forces. Tensions eased after Taiwan
President Ma Ying-jeou took office in 2008 and dropped his
predecessor’s pro-independence stance, focusing instead on
strengthening economic ties with the mainland. Yesterday’s
cross-strait banking regulatory meeting is the third since the
practice started in 2011.

The CBRC may allow the island’s lenders to establish sub-
branches in different cities under more favorable rules than
other foreign banks, Fan Wenzhong, director general of the
international department at the CBRC, said in Taipei.

“Market-access rules for Taiwan banks are more relaxed
compared with those for foreign banks,” Fan said at the press
conference in Taipei yesterday. “China hopes Taiwan will offer
better treatment for Chinese banks in return.”

The FSC said it plans to remove a requirement that cross-
strait lenders operate in Organization for Economic Cooperation
and Development member economies for five years before setting
up a branch in either market. The change will benefit small to
midsized banks that lack the international experience, according
to Chuang.